Payday Loans Can Be "Godsend"

By leading with a sensational anecdote from an anonymous source and ignoring the vast majority of responsible payday loan customers, your Cover Story "Borrowed Time" (Jan. 17) did your readers a great disservice.

Your readers should know that payday loans are a necessary product, delivered responsibly, to reasonable customers, many of whom are facing unplanned expenses and more onerous financial circumstances such as bounced check fees and late bill payment fees. For the vast majority of customers, payday loans are a godsend that helps them out of a jam for which they would have no other solution.

Payday loans are not a predatory, "welfare-reducing" form of credit, and  to the contrary  actually enhance the welfare of households by increasing the supply of credit, according to "Defining and Detecting Predatory Lending," a forthcoming study by Federal Reserve Board of New York Research Officer Donald P. Morgan and Harvard Business School graduate student Samuel G. Hanson.

Their study found that state legislators and regulators often jump to regulate "predatory" lending without ever having defined what "predatory" means. It is located at: www.fdic.gov/bank/analytical/cfr/may_2005/CFRSS_2005_morgan.pdf.

Your readers should also know that there are many responsible payday lenders who work to create payment plans for those who find themselves having difficulty meeting the terms of their loans.

Virginians should have the right to choose the credit products that best fit their needs. Restricting or eliminating payday lending won't eliminate the demand, it will only drive borrowers to unregulated options such as offshore, Internet-based loans.

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